How to Calculate W2 Income for Mortgage
When applying for a mortgage, lenders typically require proof of income to assess the borrower’s ability to repay the loan. For individuals who receive a W2 form from their employer, calculating W2 income is a straightforward process. Here’s a step-by-step guide on how to calculate your W2 income for a mortgage application:
Step 1: Gather your W2 forms
Collect all your W2 forms from the previous two years. Typically, employers provide these forms by January 31st each year.
Step 2: Determine your base salary
Locate Box 1 on your W2 form, which displays your total taxable wages. This figure represents your base salary before any deductions, such as taxes or retirement contributions.
Step 3: Include additional income
If you have any additional income, such as bonuses, commissions, or overtime pay, add it to your base salary. Find the corresponding amounts in Box 3 on your W2 form.
Step 4: Calculate annual income
Add your base salary to any additional income to determine your total annual income. This figure will be used by lenders to assess your ability to make mortgage payments.
Step 5: Calculate average income
If your income has fluctuated over the past two years, you may need to calculate the average. Add the total income from both years and divide it by two to obtain the average annual income. This method is commonly used for individuals with irregular income or seasonal jobs.
Step 6: Consider other factors
While W2 income is a crucial factor in mortgage approval, lenders also consider other aspects, such as credit score, debt-to-income ratio, and employment history. These factors contribute to the overall assessment of your ability to repay the mortgage.
FAQs about Calculating W2 Income for Mortgage:
1. Can I include income from a second job on my W2 form?
Yes, income from a second job can be included as long as you have received a W2 form for that job.
2. What if I recently changed jobs?
If you changed jobs within the past two years, lenders may require additional documentation, such as offer letters or employment contracts, to verify your income stability.
3. Should I include income from my spouse’s W2?
Only include your spouse’s income if they are a co-borrower on the mortgage loan.
4. Can I include income from rental properties on my W2 form?
No, income from rental properties is considered separate from W2 income. It should be reported on a different form, such as Schedule E.
5. Do lenders consider all deductions on my W2 form?
Lenders typically focus on your base salary and additional income, rather than deductions.
6. Can I use my W2 form for self-employment income?
No, self-employment income requires different documentation, such as profit and loss statements or tax returns.
7. Can I use projected income for the current year?
Lenders generally prefer to use historical income rather than projected income. However, some lenders may consider projected income if it can be substantiated with supporting documentation.
Calculating W2 income is a crucial step when applying for a mortgage. By following these steps and understanding the FAQs, you can accurately determine your income and present it to lenders with confidence. Remember to consult with a mortgage professional for personalized advice based on your specific circumstances.